Booksellers Getting $25 Million Settlement From Penguin

By DOREEN CARVAJAL

Published: October 6, 1997

Freed from a carefully negotiated vow of secrecy, the American Booksellers Association started alerting its national membership on Friday that it had won $25 million as a settlement in its lingering dispute with Penguin Group USA over discounts arising from the publishing company's accounting scandal.

Penguin and the association announced the settlement several days before, but agreed not to disclose its size until Friday at the urging of Penguin, the publishing arm of Pearson P.L.C., the British media conglomerate.

''This is by far the largest antitrust discrimination settlement ever in the over-60-year history of the antitrust discrimination laws,'' said the association's Washington lawyer, Jerald A. Jacobs, in a special edition of the association's trade magazine, which was sent to the more than 4,000 members of the group to explain the settlement.

Under the agreement, which came after weeks of negotiations, Penguin will pay $25 million to the association, with $12.5 million to be distributed to booksellers, based on their purchases of Penguin books in 1996.

The association, based in Tarrytown, N.Y., said it would keep the other half of the settlement ''for use in advancing the interests of booksellers.''

Payment could range from $500 to $100,000 to independent bookstores that were selling Penguin books in 1996.

The award was far less than the total of almost $163 million that Pearson took as a charge against its 1996 earnings to cover expenses resulting from a bookkeeping scandal, which it disclosed earlier this year. And Michael Lynton, the chief executive of Penguin, said he considered the $25 million award ''fairly negotiated and we are very happy to be entering a new era with the A.B.A.''

The two sides, however, still do not agree about the source of the bookkeeping irregularities at Penguin, with the company still saying a single employee bears much of the blame and the trade association nursing suspicions that broader company policies were at fault.

According to Penguin, discounts were offered to large retailers as a reward to speed the payment of bills and were later concealed within Penguin's accounts. Penguin later dismissed a company credit director, Christine Galatro, and sued her in June, accusing her of conspiring with her husband, Stanley, and with an independent collections agency owner, Jerome Bedell, in a $1.4 million embezzlement plot.

The trade association became involved in the investigation of the accounting scandal because Penguin, along with other publishers, had earlier settled an association antitrust lawsuit by signing a consent decree in 1995, agreeing not to favor large retailers with special discounts unavailable to smaller retailers.

Even after the $25 million settlement, Mr. Jacobs said the trade association remained suspicious of Penguin's version of how the discounts were given.

''I don't know whether there was an embezzlement, but the A.B.A. was highly skeptical of the rogue-employee theory from Day 1,'' Mr. Jacobs said. ''My theory is that they paid $25 million not to put to the test the credibility of that story.''

Such suspicions prompted the association to successfully demand the appointment of a lawyer with experience in antitrust law to conduct annual reviews of Penguin's operations to monitor its compliance with the agreement through 2000.

Mr. Jacobs said the settlement should serve as a warning to other publishers.

''I think all of the major publishers must carefully review their practices that favor their customers,'' he said.